Looking to set up a company in the Middle East?
There are many ways in which foreign entities (individuals or companies who are not nationals of the UAE) can go about business set up in Dubai or seek to establish a presence in the Emirate. In the following summary written for Links by Jerry Parks, of Taylor Wessing legal consultants, we provide a useful guide to the options available.
Methods of doing business
The principal ways a foreign entity might establish a business presence in the UAE are by means of: :
- A branch or representative office of a foreign company
- A limited liability company
- A professional partnership
- A Free Zone entity
Except in relation to Free Zone entities, it is generally necessary to enter into some form of agreement with a UAE national or a company wholly owned by UAE nationals.
Branch or Representative Office
It is possible for a foreign company to establish:
- A federally registered branch
- A federally registered representative office
- A locally registered branch office
Federal registrations fall within the jurisdiction of the UAE Commercial Companies Law whereas local registrations fall within the jurisdiction of the relevant Local Order applicable in each Emirate. The distinction lies in the fact that under the federal jurisdiction, either a trading branch office or non-trading representative office licence may be obtained, whereas under local jurisdiction only a non-trading branch office licence may be obtained.
Limited Liability Company
The most common form of commercial entity adopted by foreign companies is the Limited Liability Company. The law currently provides that in most cases at least 51% of the total shareholding in a limited liability company must be held by a UAE national (or a company wholly owned by UAE nationals).
There are exceptions providing that certain activities, such as real estate related businesses, can only be conducted by entities that are 100% locally owned. A reduction in this minimum local shareholding requirement is anticipated to be enshrined in the new Commercial Companies Law, but a timetable for the issue and application of that law has not yet been fixed.
Professional business is defined as ‘work based on investing mental talents and acquired information’. The conduct of professional business is governed by Local Orders in each Emirate. If a non-UAE national person or a corporate body wishes to conduct professional business, a UAE national local service agent must be appointed.
Limited Liability Company
The UAE boasts several Free Zones. The attraction for some of establishing an entity in one of these areas is that there is no UAE national shareholding requirement. The Free Zone authorities also generally guarantee investors that they will not be liable for corporation tax for a specific period of time. Free Zone entities are not liable for import or export duties for goods imported into and exported out of the Free Zone.
A Free Zone entity can take one of four forms:
- A branch office of a foreign company
- A Free Zone establishment
- A Free Zone Company
- A Free Zone Offshore company (in Jebel Ali Free Zone only)
Considerable progress has been made in the protection of intellectual property rights in the UAE. In early 1993, three federal intellectual property laws were implemented, namely the Trademarks Law, the Patents Law and the Copyright Law. The UAE has become a party to the Paris Convention for the Protection of Industrial Property (1996), the TRIPS Convention (1997) and the Patent Co-operation Treaty (1998).
These laws afford protection to owners of marks and works by the imposition of criminal sanctions on persons who seek to counterfeit, imitate or use without consent the marks or works of others. Furthermore, penalties such as fines, imprisonment or, in certain cases, the closing down of establishments or companies in breach or the confiscation or destruction of goods are prescribed by these laws.
The Ministry of Economy & Commerce is responsible for the registration of trademarks, the Ministry of Finance & Industry is responsible for the registering of patents, designs and models and the Ministry of Information and Culture is responsible for the registration of copyright works.
The periods of initial protection vary: 10 years for trademarks, 20 years for patents, 10 years for designs and models, and the life of the author (50 years plus) plus 50 years for copyright works.
Assignments and licences of intellectual property are recognised under the law provided that any such assignment or licence is registered with the concerned authority. Furthermore, the Patents Law expressly allows for pledges of patents and for such pledges to be noted on the register. It has also become possible to mortgage copyrights.
With the rapid growth of e-commerce, many countries have created a separate register for the registration of domain names. In the UAE, the United Arab Emirates Network Information Centre is the local registry of top and second level domain names. In addition, the Ministry of Economy & Commerce has intimated that it will accept applications to register domain names in the same manner as for trademarks.
In the following article, Jerry Parks of Taylor Wessing legal consultants provides a useful guide to employment laws in the UAE.
Employment contracts and relations in the UAE are subject to and governed by Federal Law No. 8 of 1980 (as amended by Federal Law No. 12 of 1986). This law applies to all employers and employees in the private sector and relates to all companies formed under the UAE Commercial Companies Law, branch and representative offices of foreign companies and owners of sole proprietorships operating in the UAE.
The basic information to be included in a labour contract is as follows:
- Date of commencement
- Nature of the work to be performed
- Location in which the work is to be performed
- Duration of the contract (fixed term or open ended)
- Amount of salary
- Date of execution of the contract
A probation period may be agreed not exceeding 6 months during which the contract may be terminated without notice and without end of service benefits becoming payable to the employee.
The situation regarding the termination of labour contracts differs according to whether it is fixed term or open-ended.
Fixed Term Contracts
Termination may be effected by the employer prior to the expiry of that term on one month's notice. In those circumstances compensation is payable to the employee in the amount of that employee's salary for a period of 3 months or the remainder of the term of the contract, whichever is the lower. The employee is also entitled to gratuity.
Termination may be effected by the employer on giving one month's notice with no compensation payable to the employee. However, the employee is still entitled to gratuity.
The calculation of gratuity differs according to whether the contract is fixed term or is open-ended.
Fixed Term Contracts
Employees who complete at least one year's service are entitled to gratuity at the end of their contractual service period or upon earlier termination by the employer calculated as follows: 21 days’ salary for each of the first 5 years, plus 30 days’ salary for each additional year.
An employee who resigns before the expiry of his contractual service period is not entitled to gratuity unless he has completed 5 years’ continuous service in which case he is entitled to full gratuity for the whole employment period.
Where the employee has completed at least one year's service, if that employment is terminated by the employer the employee is entitled to gratuity calculated as follows: 21 days’ salary for each of the first 5 years, plus 30 days’ salary for each additional year.
An employee who resigns after completing one year's continuous service under an open-ended contract is entitled to a proportion of the gratuity set out above calculated as follows:
- Continuous service in excess of 1 year but not more than 3 years – 1/3 gratuity
- Continuous service in excess of 3 years but not more than 5 years – 2/3 gratuity
- Continuous service more than 5 years – full gratuity
The law sets out certain circumstances in which an employer may summarily dismiss an employee without payment of compensation or gratuity. These include failure to carry out basic duties notwithstanding warnings, disclosure of trade secrets, committing of criminal offences and being under the influence of alcohol or otherwise intoxicated during working hours.
It is not uncommon for expatriate employees working in the UAE to have parallel labour contracts – i.e. their existing UK contract, subject to a UK governing law, and a separate short form of UAE contract, subject to UAE law entered into for the purposes of filing with the Ministry of Labour.
The UAE courts will however regard as null and void any agreement which purports to deny the employee the minimum protection set out in the UAE Labour Law. Whilst in some circumstances the entering into of parallel employment contracts cannot be avoided, we would advise that in relation to employees hired specifically to work in the UAE, they be employed locally on UAE contracts tailored to suit the employee's position.
Work Permits and Residence Visas
In order for any non-UAE national to work and live in the UAE he is required to hold a valid work permit and residence visa. The Ministry of Labour is responsible for issuing work permits and the Naturalisation and Immigration Department of the Ministry of Interior is responsible for issuing residence visas.
Prior to an employee entering the UAE the employer should apply for an employment visa for him which is valid for two years. Upon arrival in the UAE, the employee must obtain a health card and thereafter attend a Government hospital for a blood test. Provided the results of the blood test are clear, the Ministry of Labour will issue a labour card which will enable the employee to obtain a residence visa. Residence visas are usually valid for a period of two years.
There is no federal legislation imposing taxes. In the 1960s the individual emirates did enact tax decrees providing for tax on corporate entities. The practical application of these largely identical decrees is limited almost exclusively to oil producing companies, certain related service industries and banks. Exemptions to this tax are available upon application, and even the vast majority of companies to which exemption has not been formally granted are for the most part not assessed to tax.
There is an import tax which is levied at the rate of 5% on goods entering the country, unless those goods are entering one of the Free Zone areas for the purposes of re-export. In certain circumstances it is possible to apply for exemption from import tax in relation to goods, which are imported from other GCC states provided it can be shown that at least 40% of the value of the goods has been added whilst in the exporting state. This applies equally to goods manufactured or processed in the UAE (including the Free Zones) and exported to another GCC state.
Fuelled by a relaxation on freehold ownership restrictions, the UAE property market – primarily the residential sector – has seen unprecedented growth in recent years. Essentially, the Dubai Government has authorised certain developers, including Emaar Properties PJSC, Nakheel Co LLC and Dubai Properties LLC, to offer freehold ownership to non-UAE nationals. Suffice it to say that there are legal concerns, including:
- The anticipated change to the real estate laws of Dubai
- The policy of the Dubai Lands Department concerning the issue of freehold title certificates
- Amendments to the federal constitution requiring federal sanctioning of any changes to real estate related legislation
- Uncertainty surrounding the application, or otherwise, of Sharia law in inheritance situations
That said, investors and private individuals have given the local property market a vote of confidence and the level of activity, in terms of direct sales and resales, has been significant.
While we hope this brief summary is helpful, it can only serve as a guide. We recommend seeking specific legal advice in relation to any proposed venture.